IT Spending Forecast Revised Down

IDC sees restrained tech spending until economic, geopolitical stability returns

Framingham, MA — April 4, 2003 — Worldwide spending on information technology (IT) will return to positive growth in 2003, assuming a relatively short war in Iraq and stability in other regional economies, technology research firm IDC predicted this week.

According to forecasts published in IDC's new 2003 Worldwide Black Book, total worldwide IT spending in 2003 will be $852 billion, which represents growth of 2.3 percent from last year. The new forecasts are lower than the previous forecast of 3.7 percent growth, largely due to continued economic and geopolitical uncertainties.

IDC expects growth this year will be 1.5 percent in the United States and 2 percent in Europe, while Japan will see a 1.4 percent decline.

Economic and geopolitical uncertainties have had a significant, negative impact on IT spending since the fourth quarter of 2002, the researchers found. With worldwide GDP growth in steady decline and U.S. corporate profits facing the most severe downturn since the Great Depression, the gradual recovery that was slowly emerging from the accounting scandals and terrorism of the previous 18 months has stalled.

"The outlook for the next six months continues to be extremely volatile and a double-dip IT recession can't be ruled out in a worst-case scenario," said Stephen Minton, director of IDC's worldwide IT markets group.

Minton added, however, that the fundamental drivers remain solid. "Once the fog of war has cleared," he explained, "there will be a gradual recovery in corporate profits and business confidence, and this will translate into increased IT spending. We expect to see improved market conditions in every region in 2004. And by 2006, the global IT market will generate $1 trillion in revenues."

According to IDC, worldwide spending on hardware will see a 0.5 percent decline in 2003, while positive growth returns to software (4.5 percent) and services (3.7 percent). IT spending will recover in 2004 to 4-6 percent growth. This is heavily dependent, however, on economic and political stability by the end of 2003, IDC warns. The primary drivers behind the recovery include:

  • Mobility-based solutions, including the proliferation of converged handheld devices.

  • Packaged software markets which offer optimization, simplification and integration across the enterprise.

  • Outsourcing will continue to be a key growth segment despite recent cost-cutting measures which disrupted revenues during 2002.

  • The hardware market, while battered by fierce price competition and continued capital expenditure declines from telecom operators, has already seen tentative signs of recovery in unit shipments.

"Over the next three to five years, we expect the industry will adjust to growth rates of 6 to 7 percent," Minton said. "We will not return to the double-digit growth rates [that] preceded the downturn. Those days have gone, at least until the next paradigm shift or speculative bubble. But we will recover to an industry [that] modestly outpaces growth in the rest of the economy."

IDC's 2003 Worldwide Black Book presents a view of worldwide IT spending patterns based on local market research in 55 countries around the world and an examination of hardware, software and services spending and growth opportunities from a local, regional and global perspective.

Earlier this week iSource Business reported on the IDC's forecast that that worldwide spending on information systems (IS) outsourcing services reached more than $68 billion in 2002 and is expected to surpass $99 billion by 2007, representing a five-year compound annual growth rate of 7.7 percent